Business Management Affairs - Coursework Example

?Business Management Affairs: Case Study Introduction Business is the best area for an individual to demonstrate his/her potential as it promises unlimited opportunities and rewarding challenges. According to economic surveys, a person’s life expenses increase by ten per cent every year with considerably marginal growth in his/her annual income. Therefore, business is the best choice to procure unlimited income to meet the mounting expenses. However, it is not easy to commence a business because a detailed planning process is essential to evaluate different market opportunities and threats. The following part of the paper with specific focus on the pros and corns of Sole Trading, Partnership, and Company Operations, illustrates the relevant aspects of beginning a business. Sole Trading When a person individually initiates and operates his/her own business, it is called sole trading. The most obvious feature of sole proprietorship is that there is no legal distinction between the business and the owner. Usually, a sole trader uses a trade name or business name instead of his legal name. Under UK company law, the proprietors’ name must be shown on business emails, business stationery, and other business premises. It generally involves lower amount toward capital investment as compared to other modes of business ventures. It is best fitted to people with innovative business ideas and sufficient capital for running their business. The main benefit of this system is that the businessman owns everything what he acquires from the business. Moreover, with the feasibility of self guidance, the individual can grow without restrictions. In addition to this, as Tonkin (2006) states, sole trader can start the business with minimum set up cost and can continue operations without a tax file number. He is also exempted from many other legal charges and superannuation. Since the sole trading business specifically focuses on certain market segments, the sole trader can effectively satisfy the customer needs. In addition, the individual can take advantages of personal relationships for the business promotion. On the other hand, sole trader is not free from risks as he is the only person responsible for any loss incurred in the business. Therefore, if the sole trader faces business loss; his every asset including personal asset may be seized to discharge the liabilities he has incurred. This personal liability becomes the most threatening disadvantage of sole proprietorship. A series of legal obligations may also drag him out of the line; sometimes he needs to pay provisional taxes. Similarly, sole trader may face difficulties in the event of an unforeseen contingency since he has only restricted access to financial sources. The lack of access to financial sources also becomes a barrier for the sole trader to recruit high-caliber employees. Another major disadvantage of sole proprietorship is that it cannot allow credit sales since this type of business has limited access to working capital; this situation is an impediment to business expansion. A positive spell of possible success is found in the given discussion. As Matt is the winner of the TV show “You’re Hired”, he may have creative concepts as well as sufficient capital to start his business as a sole trader. Partnership When two or more persons join together with their capital and make contract to run a lawful business, it is called partnership business. This system ensures collective responsibility for all liabilities arising on the ground of the partnership business. As it is in the case of sole trader, registration of partnership is not necessary. This feature helps the partners in minimizing the struggles of legal formalities. All the strategies of partnership firms are formulated on shared opinion of partners which would make the policies rather balanced in their nature. At the same time, any partner may represent the business without giving prior information to other partners; therefore, one partner’s acts have the power to bind the entire partnership. Partnership provides integrated knowledge of all partners by estimating the implications of pros and cons of each proposed program. Since it is a combined form of business, pooling of financial resources is easier task than in the case of sole trader. The most attractive benefit of partnership is that it guarantees division of risks among the partners as far as possible based on the strength of partnership deed. In addition to this, the secret nature of books of accounts is another advantage of partnership firms. Partnership is a cost effective business method as each partner can specialise in different areas of the business. Finally, moral support and more creative brainstorming are the peculiar features of the partnership. At the same time, unlimited liability of partners might weaken the scope of partnership with a possible impact of negative social image. As finds in Singla (2009, p. 42), in case of lack of coordination in the opinions of partners, it would lead to lack of harmony and thereby inefficient business performance. Likewise, the existence of the partnership firms is uncertain as the partners have the right to terminate partnership at any time after giving a prior notice (ibid). The partnership may also end upon the death of a partner. Since business partners are individually liable for other partners’ deeds, a partner’s thoughtless act may put the whole business in danger. The time spent by each partner on the business would be different; therefore, it may be a difficult task to distribute the business profits among the partners. In addition, it is not possible to assess the skill of each partner. Since the partnership business includes a series of business negotiation phases, it may take a long time to develop the partnership agreement. Moreover, large numbers of limitations keep a partnership firm from becoming a large business. However efficient and skillful approach intensifies the scope of partnership. So, it is advisable for Matt to find one or two other individuals having same interests in order to form partnership business. By doing so, he can share his ideologies and innovative notions with his partners. In this case, it would be advisable for Matt to form a partnership deed with Simon because both of them work in the same field and therefore it may be easy for him to harmonise their business concepts. Company Company formation or company registration is the process of incorporation of a business in the UK. A company is formed when some persons organize themselves together to form a business venture. According to section 9 of the Companies Act 2006, Articles of Association, Form IN01, and Memorandum of Association are some of the essential documents that must be sent to the Registrar of Companies to form a private limited company. Under this system, many persons jointly invest their capital for the formation of the company; hence it is also called Joint Stock Company. Unike the case of partnership firm, shareholders’ private properties cannot be sequestrated in order to realize their business liabilities (Schneeman 2009, p.202). Since a shareholder can transfer his shares whenever he needs, this facility provides more liquidity to his savings. Similarly, a company is more stable than a sole trader or partnership firm because the shareholder’s death, insanity, bankruptcy or termination does not affect the operation of the company. Corporate accumulation of sufficient capital and efficient managerial capabilities facilitate the scope of company’s further expansion. A shareholder has no further liability if he has paid full amount on his shares. Since a Joint Stock Company is a financial conglomeration of people from multiple spectrums and the ownership identification is marked by the possession of a Share Certificate, more complex registration process and other legal formalities are inevitable in its formation. The elected shareholders (directors) are only the authorized persons to have direct access to the operations of the company with little participation of other shareholders. Similarly, excessive governmental control also hinders the smooth running of the company at times. Even if it is the most appropriate risk free method to start a business, Matt may not get the opportunity to implement his own business concepts if he invests in a company. UK company law and most international laws consider a company and a corporation as separate entities. According to Freedman (2000), separate legal personality or separate legal entity is an attractive characteristic of a company. Since the company is an artificial legal person, it has all the legal rights and obligations of an individual person. So, the company can acquire various assets such as land and building or plant and machinery on its name; it can also open accounts or enter into agreements with the power of its legal personality. The identity of the company as a legal person provides it with a benefit that it can file a suit against anybody and can be sued by anybody (ibid). The acts or personal liabilities of members do not affect the constitution of the organisation with any possible threat of bankruptcy. Similarly, the shareholders’ liabilities are limited and they are escaped from the sequestration of their personal assets for the business liabilities since the company is a separate legal entity. As a result of this special feature, business and business persons are separated in the point of view with guaranteed scope for amplifying the growth of the company. Being a separate legal entity, the company ensures safety of investments and attracts more investors and shareholders to the business. The company, while being considered a legal person, requires maintaining a signature, which is a common seal. The incorporate fund management system in the company allows little chance of manipulation as the BoDs and higher officials have no authority to operate financial accounts in any form. The legal identity of the company and its separation from the personal indices of its share holders reduce the burden of investors by keeping them unanswerable to the Company’s Act or any provisions of the law. Conclusion The paper has deeply discussed the pros and corns of sole trading, partnership, and company. From the above discussion, it is clear that sole trading is the most suitable business for Matt if he is willing to take all risks (unlimited liability) associated with the business. In other words, though sole trading is the most profitable business form, it involves higher levels of risks too. Under partnership business, partners are jointly and equally liable for the whole business gains of losses. However, this business method has an array of limitations as it is formed on the strength of a partnership agreement that contains series of provision and regulations. Finally, the company is the most riskless business form as members has only limited liability and members’ personal properties cannot be seized towards the discharge of company liabilities. However, an individual like Matt cannot apply his creative concepts in business operations if he decides to become a company member. References Freedman, J 2000, ‘Limited liability: Large company theory and small firms’, The Modern Law Review, Jstor, vol.63, no.3, p.317. Singla, RK 2009-10, Business Organizations, V.K Enterprises, New Delhi. Schneeman, 2009, Law of Corporations and Other business Organizations, 5th Edn, Cengage Learning, USA. Tonkin, C 2006, The Australian Consultant’s Guide II: Setting up and running your own consulting business profitably and painlessly, Aragon Gray Pty Ltd, Australia. Read More